Bankruptcy Trustee Sues Feds, Lenders Over ITT Loans

Submitted by Paul Fain on September 12, 2018 - 3:00am

The trustee appointed to oversee the bankruptcy proceedings for ITT Educational Services Inc. is suing the U.S. Department of Education and lenders who backed the failed for-profit chain's private loan program, The Wall Street Journalreported[1].

Deborah Caruso, the trustee, argued in a court filing[2] last week that the department failed to adequately act to protect students from the loan program, which allegedly preyed on low-income students. Two years ago, ITT shut down[3] its 130 campuses, which enrolled 43,000 students at the time. The company had been facing serious financial stress, sanctions from the department and a wide range of investigations and lawsuits.

"ITT’s PEAKS Loan Program was a for-profit education version of the sub-prime mortgage lending catastrophe, in which students rather than new homeowners were the victims," Caruso said in the filing. "For the benefit of ITT insiders and defendants, the PEAKS Loan Program allowed ITT to defraud students and evade regulators, while shielding the fruits of ITT’s fraud from claims of students through a complicated structure involving multiple trusts and a circuitous flow of funds between ITT and defendants. After ITT paid hundreds of millions to defendants, and millions to insiders, there was little or nothing to pay $1.5 billion in student claims, U.S. Department of Education claims, or claims of other creditors."

The trustee is seeking money to pay for some of the $1.5 billion in claims from students[4] and others.